TWP, a leading accountancy firm in Surrey, urges individuals to review their estate plans in light of upcoming changes to Inheritance Tax (IHT) on pension pots.

Under the new rules set to apply from April 2027, unused pension savings will be included in the taxable estate, meaning families who don’t plan ahead could lose a significant portion of their inheritance to the taxman.

Andrew Goddon, Partner, Head of Taxation Services, warns that many people are unaware of just how much this could impact them.

“A lot of people assume their pension is protected from Inheritance Tax. While that may be true now, it may not be the case for thousands of individuals from 2027.

If you have a large pension pot, your family could end up with a hefty tax bill that could have been avoided with the right planning.”

There are still several options to take advantage of that will help to reduce the impact of IHT, but acting early is crucial.

“One of the simplest steps is to make full use of the tax-free allowances. Married couples and civil partners can pass assets to each other tax-free, and any unused nil-rate band can be transferred, potentially protecting up to £1 million from IHT.

“Homeowners should also ensure they are maximising the residence nil-rate band by passing their property to children or grandchildren where possible.”

Another popular strategy to consider is gifting. You can give away £3,000 each year tax-free – or £6,000 if the previous year’s allowance wasn’t used.

“We often help clients structure their finances to make tax-efficient gifts to loved ones, such as wedding gifts and small financial contributions.

“Regular gifts made from surplus income – like helping with school fees, mortgage, or rent payments – can also be exempt from Inheritance Tax if they form part of a consistent pattern and don’t affect your standard of living.”

Trusts are another tool individuals can explore, particularly for those who want to pass down wealth while maintaining control over how it’s used.

With the right structure, assets placed in a trust may not be included in the taxable estate, helping to reduce IHT liability.

Andrew emphasises the importance of getting ahead of the changes: “The biggest mistake we see is people leaving estate planning too late. If you wait until the changes come in, your options will be vastly reduced.

“Whereas if you start planning now, there are some really effective ways to reduce the tax burden and ensure more of your wealth goes to your loved ones.”

With IHT thresholds frozen until 2030, more families will be brought over the threshold. Including pensions in taxable estates from 2027 will only increase this further.

TWP is encouraging anyone with significant pension savings or valuable assets to take action now to review their estate plan and put strategies in place to protect their wealth.

Andrew concludes: “No one wants to see their hard-earned savings eaten up by tax. By working with a professional accountant to review your estate plans now and make adjustment where necessary, you can ensure your money goes to the people you care about rather than HMRC. The sooner you get started, the more options you’ll have.”

Contact TWP today at 01932 704700 or visit their website, www.twpaccounting.co.uk for expert guidance on protecting your estate from unnecessary IHT.